The public sector includes all organisations owned or controlled by any of the three levels of government within the Australian political system - Australian (Commonwealth), state (and territory), and local. The responsibilities of each level of government differ (see Chapter 4 - Government of this edition of Year Book Australia for further discussion on this matter) and each level has specific sources of revenue with which to fund its activities.

In the Australian system of GFS, a fourth level of government is also identified - multi-jurisdictional. The multi-jurisdictional sector contains units where jurisdiction is shared between two or more governments, or where classification of a unit to a jurisdiction is otherwise unclear. The main type of units currently falling into the multi-jurisdictional category are the public universities.

The public sector can be divided into three institutional sectors which group organisations with similar characteristics:

General government - the main function of general government entities is to provide non-market goods and services (e.g. public roads, public hospitals, libraries) primarily financed by taxes; to regulate and influence economic activity; to maintain law and order; and to redistribute income by means of transfer payments.

Public non-financial corporations (PNFCs) - the main function of PNFCs is to provide goods and services which are predominantly market, non-regulatory and non-financial in nature. Market operators make decisions about what to produce and how much to produce in response to expected levels of demand and expected costs of supply and are exposed to the risks associated with this production.

Public financial corporations (PFCs) - PFCs are enterprises which engage in financial intermediation (i.e. trade in financial assets and liabilities), such as central borrowing authorities, the Reserve Bank of Australia, government banks and insurance offices, or home-lending schemes.

Within GFS the consolidated total of the general government, the PNFCs and the PFCs sectors is referred to as the 'total public sector'.

The GFS framework is divided into a number of separate financial statements, each of which is designed to draw out analytical aggregates, or balances of particular economic significance. Taken together, they provide a comprehensive description of the financial positions of jurisdictions, both individually and collectively. These statements are the operating statement, the cash flow statement and the balance sheet.

The operating statement presents details of transactions in GFS revenues, GFS expenses and the net acquisition of non-financial assets on an accrual basis for an accounting period. Two key GFS analytical balances in the operating statement are GFS net operating balance (NOB) and GFS net lending/borrowing. GFS NOB is the difference between GFS revenues and GFS expenses and reflects the sustainability of government operations. GFS net lending/borrowing is equal to NOB minus the net acquisition of non-financial assets. A positive result reflects a net lending position while a negative result reflects a net borrowing position.

The cash flow statement identifies how cash is generated and applied in a single accounting period. It reflects a cash basis of recording, where the information has been derived indirectly from underlying accrued transactions and movements in balances. In effect, this means that transactions are captured when cash is received or when cash payments are made. Cash transactions are specially identified because they allow the compilation of the cash-based surplus/deficit measure and because the management of cash is considered an integral function of accrual accounting.

The cash based surplus/deficit is a broad indicator of cash flow requirements. When it is positive (i.e. in surplus), it reflects the extent to which cash is available to government to either increase its financial assets or decrease its liabilities. When it is negative (i.e. in deficit), it is a measure of the extent to which government requires cash, by running down its financial assets or by drawing on the cash reserves of the domestic economy, or from overseas.

The balance sheet is the statement of financial position for a sector at a specific point in time. It shows the assets, liabilities and GFS net worth. GFS net worth is an economic measure of wealth. For the general government sector it is calculated as assets less liabilities. For the PNFC and PFC sectors, GFS net worth is calculated as assets less liabilities less shares and other contributed capital.

Tables 28.1 and 28.2 present the 2007-08 general government and total public sector operating statements. Tables 28.3 and 28.4 present the 2007-08 cash flow statements. Table 28.5 and 28.6 present the balance sheets for June 2008.

(e) Equals financial assets less total liabilities less shares and other contributed capital. While Net financial worth should add across levels of government, small discrepancies may remain due to the difficulties in accurately identifying the parties and counter-parties associated with financial assests and liabilities.

(e) Equals financial assets less total liabilities less shares and other contributed capital. While Net financial worth should add across levels of government, small discrepancies may remain due to the difficulties in accurately identifying the parties and counter-parties associated with financial assests and liabilities.